With EU support, can Ukraine beat its neighbours on the way to energy independence?

19-07-2017

In June this year, 30 Ukrainian cities simultaneously became signatories of the Covenant of Mayors, a European initiative designed to make cities and towns more energy efficient.

While expectations of the initiative may be somewhat different in Europe and in Ukraine, this is an initiative from which all parties can benefit. Mayors of the Ukrainian towns  (there are now 117 of them in total) get access to additional financing, their towns' residents get access to energy saving programmes and Europe overall secures better results towards implementation of the Paris Climate Agreement.

However, this is not the end of the road. Many obstacles still have to be overcome on the way to success.

What assistance can Ukrainian cities count on, why is the modernisation of residential buildings so difficult, where should Ukraine be careful not to repeat the EU's mistakes, and how did Ukraine fall behind even Belarus in terms of achieving European standards in this sphere? These are just some of the questions along the way to energy efficiency in Ukraine.

"Do you need money or help?"

"Only a lazy person does not speak about energy efficiency. I get the impression you can come to a socket and from there you will hear words: 'energy efficiency'," Andriy Kyrchiv jokes with representatives of the Ukrainian cities in Zhytomyr.

Andriy is an executive director of the “Energy Efficient Cities of Ukraine” association and works in the support team of the Demonstration Projects programme, a grant component of the Covenant of Mayors. In total, 11 Ukrainian towns received non-refundable financing. Some have already completed their project (for instance, a school and a kindergarten in Slavutych have almost been modernised to more energy efficient standards); some are substantially further from completion (in Kramatorsk, they explain how a new electric substation will function in a trolleybus depot, but have nothing to show for it yet).

However, information about "the EU's money" still spreads around and encourages others to follow this direction. Sometimes, mayors claim that money is the only thing they need from the European Union. However, this is where the first disappointment awaits.

"Don't sign the Covenant of Mayors if you think the agreement in itself will bring money to your town. You will have to work hard for the money to come," warns Oksana Kysil, the national expert of the Covenant of Mayors East in Ukraine.

This does not mean that there will not be any money; on the contrary, there is enough financing.

Sometimes donors' money and low-interest loans from the EU and other European institutions are left unspent, simply because there are not many good enough proposals from Ukrainian towns.

"There is money in Ukraine. The EBRD, the EIB, the World Bank, the NEFCO financial institution, the European Commission, all of them finance energy efficiency programmes. To them, it is important that the city is a full-fledged partner, with expenditure control schemes and so on. It is necessary to be able to speak the same language with them – that is why training is needed for municipalities," Oksana Kysil explained.

Those who understood this need are winners now. For instance, Dolyna town in Ivano-Frankivsk Region, or Zhovka town in Lviv Region implement grant programmes that exceed the city’s development budget several times.

Success stories

It may seem too abstract (it is easier to "touch" money than knowledge), but the heads of towns who finally received western funding admitted they would not have had any chance of success without training.

"It is a big problem that towns' officials are not able to write an application which would get financed," said Svaytoslav Pavlyuk, the main expert from the Energy Sector Reform of Reanimation Package of Reforms. He added that the town's participation in the Covenant of Mayors was already acting as a major bonus to the mayor's office. "If a town has developed an SEAP (Sustainable Energy Action Plan), donors and financial institutions start viewing it differently," he said.

The areas engaged in energy efficiency may seem strange. A few towns (for instance, Kramatorsk and Kremenchuk) started with the modernisation of electrical transport at once. Few people think of energy efficiency when they speak about trolleybuses, but they should: transport is very energy-intensive, so it is an effective way to save energy.

However, in most cases western money is spent on energy modernisation of schools, kindergartens, hospitals and street lighting.

The most difficult job is to work with multi-storeyed buildings. Residential buildings have dozens or hundreds of co-owners, who have to agree on a decision. Additionally, the building's residents have to agree to spend their own money on co-financing.

In a state where people are used to freeloading, this causes the most problems. Fortunately, even here success stories can be found.

In Dolyna, the energy modernisation programme has been going for a few years: under this scheme, people pay 20 per cent of the cost, the EU covers almost 60 per cent and the rest is covered by the city. But the funding is available only if the entire building gets insulated.

"In the beginning we had to explain, convince and look for those who would agree to do it. People said: 'Why do we have to pay 20 per cent, they have to do it for free!' But when winter came everyone saw the result in modernised buildings and the following year we had a huge number of applications, they were ready to pay more than 20 per cent because they understood that this was freeloading," the town mayor and president of the Association of the Energy Efficient Cities of Ukraine, Volodymyr Harazd, said.

It is true that sometimes the building's residents had to overcome their stereotypes, for instance, pay the debt for someone who did not pay the bills, or convince someone to pay. But those who dared to do so, won.

Now, one third of residential buildings participate in the programme in Dolyna. The mayor is convinced that with time he will be able to find co-financing for everyone, as long as people are ready to get organised.

Zhytomyr has a similar experience. Here they managed without donors' money, they applied for the state energy efficiency support programme for housing cooperatives (the budget covers 40-70 per cent of the energy efficiency loan) and added their own contribution, and the city pays part of the interest on the loan. Unfortunately, people were afraid of a loan.

"There were many fears, to the point that their apartments would be taken away from them, even though their housing would not be mortgaged. We went to people's homes and explained this and were looking for at least one participant," said Borys Pakalyuk, who carries out the function of the energy manager in Zhytomyr.

Finally, the first housing cooperative ventured to participate in a project with a ridiculous amount of 30,000 hryvnyas (around €1,100). And when they received compensation from the state in a couple of months and saw that the local council really helps them to pay the interest, "the word of mouth" started working. "We were prepared to spend 2 million hryvnyas (around €72,500) to compensate for a loan in 2015 but in reality we spent only 15,000 (around €550). The amount grew 12 times during the year up to 180,000 (around €6,500) and the dynamics remain the same. People started to believe. There are examples when one housing cooperative has applied for a loan for the third time," he said.

The fact that towns spend money on insulation of residential buildings deserves special attention since the residents' utilities expenses are not tied with the town's budget.

"Thermal modernisation of buildings does not reduce budget costs, but it is still necessary for the town. We do not produce gas or electricity in Zhytomyr and this means that energy expenses swallow up residents' money from Zhytomyr. Saving the energy will keep this money in town, people will spend it here," Borys Pakalyuk explained.

The same logic should have worked for all Ukrainian towns and cities.  And there are many more arguments in favour of it, such as creating jobs for local builders. In fact, in those towns and cities where the local authorities invest in such assistance, the mayor has far greater chances of re-election.

Tactics and strategy

It should be acknowledged that such a strategic approach is the exception, not the rule. In Ukraine, apartment owners and entire cities lack it.

"European agencies give very low-interest loans for municipal projects, with 3 per cent interest, and still in some towns, the heads of financial departments say: 'We will not take any loans, only over my dead body.' There is no logic here, since an energy efficiency loan pays itself off immediately," said Oksana Kysil.

The lack of strategic thinking is also apparent in how the Covenant of Mayors is viewed. This initiative is also implemented in 7,500 cities and towns in EU countries and in reality its goal is not energy efficiency but combatting climate change as well as adjusting to those climate changes that have already taken place. The efficiency of energy consumption is only a tool for decreasing greenhouse gas emissions. "However, in Ukraine we will speak not about climate change, but only about energy efficiency. Here we have a mentality gap with the EU citizens, who are prepared to think about strategic things," Kysil said.

The Team Leader of the support team of the Covenant of Mayors - Demonstration Projects, Jan Waanders, said that even among the EU's eastern neighbours, Ukraine is far from being a leader.

"Generally, you are moving in the right direction, the government has the political will. However, I see more pressure from the government in other countries of the region in order for more action to take place locally. In Ukraine, such pressure is absent," he explained.

It's as if Ukraine understood that energy efficiency is a matter of state importance, but left the initiative to mayors and city councils. By the way, even the mayors hope the pressure from the state will finally come.

"The government must give a task to the cities and demand for it to be implemented. This is done via the budget, through financing towns only under certain conditions," Volodymyr Harazd said.

Interestingly enough, Belarus has the greatest success among the EU's neighbours.

"The Belarusian government made energy efficiency a priority a long time ago by decreasing the consumption of imported gas. Even five years ago, they had government-supported programmes similar to what Ukraine is only now initiating. Perhaps, centralisation played its role: if Minsk said so, then all the regions do it," Jan Waanders added.

Experience of mistakes in the EU

 

Of course, Ukraine should not follow the EU blindly on the way to energy efficiency. EU countries made their fair share of mistakes along the way as well.

However, Ukraine still successfully repeats some mistakes that EU countries made, especially, when it comes to amateur activities of the municipalities, which fail to take the advice of the dedicated agencies and experts. 

"As a rule, cities start modernisation with boilers and networks, but they should start with the consumer because the power of heat generation may be excessive. Poland has already taken this road when they changed boilers and modernised the networks first and then the houses. And when they finished their work it transpired that two thirds of the generation is not needed," Svyatoslav Pavlyuk said.

Another typical Polish mistake was the use of overly cheap insulation.

In the early 90s, many residential buildings were insulated with five-centimetre thick foam plastic. "Then they had to take it off everywhere and use 15-20-centimetre layers because five centimetres were not effective," the expert explained.

However, there is experience from which Ukraine can learn. A good example are the rules for the modernisation of residential buildings in Lithuania, where this process is still on-going, and such a "Ukrainian" mechanism as subsidies is still in place.

In response to our question, the Lithuanian Environmental Ministry (the agency responsible for energy efficiency programmes) said it was impossible to block a decision on a building's insulation just because a small group of residents was against it. It is enough to have a simple majority, 50 per cent plus one vote, and the decision will be made.

However, this is not all. Those receiving subsidies are usually less interested in modernisation because they do not want to spend money on insulation. That is why the state came up with a special incentive for them.

As of 2013, residents who receive subsidies, but vote against any energy efficiency initiative for the building (or simply do not participate in a meeting and voting), get sanctioned in response: their subsidies get cut by 50 per cent during the current year, and from the beginning of the following year subsidies get cancelled for three years.

Then why not introduce a similar practice in Ukraine? This would prevent a passive majority from blocking changes in a building where an active minority are willing to go ahead.

Ukrainian peculiarities

Of course, Ukraine has its own peculiarities, which EU countries, possibly, have not encountered. One of them is the deplorable condition of the public sector.

"An official who brought a project worth 3m euros into town may have a salary of 3,000 hryvnyas (slightly more than 100 euros) and that is why many lose their motivation," Oksana Kysil said, citing an example where the Covenant of Mayors invested great efforts into the preparation of energy managers and their training abroad, but as soon as professionals achieved a certain level they resigned and went into business. Everyone recognises this problem but it is unclear at the moment how to solve it.

"There must be a state-wide human resources policy, there must be a motivational system established for those who bring projects worth millions of euros to their town. For instance, it could be written in the law on energy efficiency," Kysil suggested.

At the same time, Volodymyr Harazd said that, "the state limitations will not resolve anything" and insisted that every mayor has to have an individual approach. "The state will not create a special detachment of energy managers who are banned from getting jobs in other places!" he joked. Based on experience, some towns provide an additional payment to energy managers or offer higher positions, up to the level of the mayor's deputy.

In Sumy, an interesting way to resolve the problem was found. "Based on USAID's recommendation, the local council prepares a decision to give a bonus to the energy manager based on a percentage from the amount he brought into the city. It will be a bonus and not a pay raise, and this will motivate him to prepare new projects," explained the official of the Sumy city council apparatus, Tetyana Kravchenko.

Human resources problems happen in all countries of the world. But there is another peculiarity, a purely Ukrainian one. This is the problem of heat theft. This does not happen either in Central Europe or in the Eastern Partnership on the scale seen in Ukraine. Radiators are taken to the balcony, floors are heated with the help of central heating - these are only among some obvious violations.

"During Soviet times, people learnt to be creative in cheating the state. There are cities where people use hot water from the radiators to take a shower! This can be seen from the volumes of water pumping in to the heating system, which drastically increase in the morning and evening," Svyatoslav Pavlyuk said.

It does not make sense to speak about high quality energy management of the building in which a radiator "heats the street". Pavlyuk admitted that even if everyone knows that residents of a particular apartment steal the heat, neither the public utilities service provider, nor the housing cooperative have mechanisms to legally prove it, since the owner has a right not to let the inspectors into his house.  However, this is not a strong argument for the EU.

"You are saying you do not have the levers to find theft? But this is not serious. The state sets the rules of the game. For instance, the law limits the maximum speed on the roads and there are ways to monitor the drivers; therefore, the state has to set the rules for checking apartment owners the same way. There is no free heat, one has to pay for the consumed energy," Jan Waanders said.

And sooner or later Ukraine will have to understand this.

Author: Sergiy Sydorenko

Article in Ukrainian